Or What Does Fraud Look Like?

 A set of circumstances that are unusual in nature or vary from the “normal activity”

 Do not ignore a red flag  Conduct inquiry to determine reason for abnormal circumstances  Sometimes an error is just an error  Is there intent?

Fraud and Stupid Often look exactly the same

RationaleNeed Opportunity Control Environment

 #1 Reason Fraud Occurs: Blind Trust

 High employee turnover  Refusal to take vacation or sick leave  Lack of segregation of duties  Lifestyle changes  Significant personal debt and credit problems  Behavioral changes  Drug or alcohol related  Gambling  Fear of losing job

 Low or inadequate salary  Difficulty in obtaining audit evidence  Severe disciplinary actions  Lack of respect or appreciation by superiors  Resentment for not being treated fairly

 Remember that employees will circumvent internal controls not for the purpose of committing fraud, but because….  It makes their job easier, but by doing so, an opportunity is provided  Sooner or later, an employee will have a need  They only need to be able to rationalize in order to take advantage of the opportunity

 Reluctance to provide information to auditors  Frequent changes in P-Card accounts  Frequent changes in external auditors  Missing documentation  Often misplacement of the P-Card  Frequent reports of fraud reported at the end of the cycle

 Excessive number of voids, discounts and returns  Accounts that are not reconciled in a timely manner  Split Purchasing  Large number of charges to the same vendor in a short time frame

 Missing receiving documentation  High volume of purchases from a new vendor  Frequent requests for increase in P-card monthly limits  Turns in reports late or last minute  Doctored receipts

 We tend to accept any “Reasonable” explanation  We assume  We just don’t want to find fraud  It takes time  Lack of training to recognize basic internal controls

 Recognizing the red flag is not sufficient  Action must be taken to determine the cause and the possible effect Evaluate by:  Observation  Financial analysis  Correct the situation  Educate the responsible people (red flags are most likely a warning that something is wrong either personally or professionally)

 Red Flags are “Warnings”  Do not ignore (They will be waiting for you!)  There are no “Little Frauds”  OMES P-Card Team suggests that you internally audit a random selection of charges each month  Put consequences in place for your p-card holders if rules are not followed  Make sure your policy and procedures are up to date

 Look for duplicate charges  Look for multiple purchases at the same vendor  Look for vendor names that seem like an unusual place to buy product for what is needed  Always read the comments put in by the cardholder- they can give you information that might raise a flag

 Cardholder responsibility  Do and don’ts of the program  Program manager responsibilities  Approver responsibilities  Auditors  Breakdown of any of these roles can cause fraud to slip through the cracks

 Training- P-Card initial class  Training aids posted online  Refresher training every 2 years  The agency can perform this training and highlight issues their agency is having  All communication should emphasize compliance  Does it meet the scrutiny test??

 Communicate using multiple methods  Ask very specific “detailed” questions when transactions are “flagged”  Direct cardholders to additional resources  Follow-up routinely and consistently until adequate response is received  Advise cardholder when the matter is resolved  End each communication with your contact information

 Compare historical audit findings  Look at other agencies’ audit findings and recommendations  Clearly define violations  Consistent follow-through

 Use the gathered information for continuous improvement  Make sure appropriate controls and workflows are in place  Train, communicate, respond accordingly